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Many asset managers claim to do ESG integration. But do they really? It can be a tough call, as the marketing is often stronger than the execution; scores and ratings tell only part of the story; and the confusion over concepts makes it even harder. Here are four questions that can help you get behind the façade.
1. Why does the asset manager integrate ESG?
What’s the conviction behind a fund’s ESG integration? In the absence of a direct answer, try to get a sense of whether it is aimed at better decision making, better risk assessment, better insight into what they own, taking responsibility, or simply pleasing customers. Of course, a poor answer is telling, but also treat a strong answer with extreme caution: it’s easy to spin a good story about lofty ambitions. It’s harder to put them into practice. So dive deeper. What do they really do? How do they do it?
2. What's the approach?
Most asset managers will have a ready-made answer. But again, the key is to go deeper. At the fund level, typical follow-up questions are:
Taking it to the group level, you might ask:
3. How does it affect decision making and portfolios?
This question is typically answered by referring to the portfolio’s average sustainability scores and sector exposures. But that’s too easy. First of all, scores do not provide the complete picture. Second, it doesn’t mean that decision making is affected in all stages of the investment process. You should therefore ask questions like:
4. How have they experienced ESG integration?
In my experience, the killer questions in distinguishing the really advanced players from the mere marketing facades are the ones that dig into the asset manager’s experience, such as: